Shell Solar: Highlights the Importance of Solar Product Warranties

The following case study involving Shell Solar highlights the importance of a good solar product and performance warranty. Be sure to see our recommendations at the end of the article how you can protect yourself.

Shell Solar became embroiled in a major row with the World Bank and green energy companies in January 2010 after allegations that it is unfairly refusing to honor warranties on solar power systems sold to the developing world.

A wide-spread breakdown of solar units installed in Sri Lanka and elsewhere has led to accusations of Shell abandoning a responsibility to impoverished communities while damaging the prospects of the wider renewable power sector in a world desperate to reduce carbon emissions.

Here's the basics of what happened.

Solar power in Sri Lanka

It is estimated that roughly half of Sri Lanka’s population does not have access to the electricity grid. This represents approximately nine million people, or two million households. Moreover, market surveys have found that over 300,000 of these un-electrified households currently rely on battery charging for entertainment.

In September 1999, Shell Solar Lanka Limited acquired Solar Power and Light Company and entered the solar power market in Sri Lanka to provide solar produced electricity to qualifying customers.

Whereas traditional rural solar programs are generally one-off projects where an operator comes in with a grant, sets up the solar systems and leaves the area, Shell Solar Lanka was run along the lines of a local business. Being a financially stable solar entity, it offered long-term customer support and maintenance to systems that need to be serviced to continue to work.

World Bank Grants

Shell Solar Lanka, with the aid of the World Bank and the Global Environment Facility (GEF) was able to reduce the average cost of each solar system to US$ 500. The program provided a grant per unit installed and has been key to attracting private sector investment. The grant allows companies to put in place, recruit and train staff, establish rural branches and holding stock, etc and keep the costs of the systems affordable.

Even with this reduced cost, many rural households are not in a position to purchase a solar home system on an outright cash basis. Therefore, the company developed a credit scheme in conjunction with local banks, including Sarvodaya Economic Enterprise Development Services (SEEDS), a micro-finance organization. Under the scheme, customers paid an initial deposit of approximately US$ 100 and US$ 10 per month over five years. The grant reducing the costs and the credit scheme ensured the popularity of the program.

The company successfully grew sales from 350 units in 1999 to eventually to more than 30,000 installations before they decided they wanted to get out of the solar business.

Shell Exits Sri Lanka

In 2007 – Shell made a strategic decision to exit the solar business. They sold their manufacturing to Solar World and their customer service and maintenance arm in Sri Lanka to Environ.

According to Damian Miller, a former Shell manager who now heads his own solar business, Orb Energy. "Shell exited the solar industry on a global basis, seemingly without due consideration to how after-sales service and warranty replacements would be provided, thereby damaging the very local solar industries it had earlier helped to create."

A Shell spokesman in the Hague countered by saying that "In October 2007, Shell sold Shell Solar Lanka Ltd to Environ Energy Global PTE Ltd. Specifically in order to protect customer interests, the terms of the transaction explicitly covered the management of all past, present and future liabilities, including warranty issues."

Environ Energy Global admits that it understands that resolution of this issue rests with them, but [its] own management team in Sri Lanka continues to approach Shell for assistance.

The situation was complicated by the fact that Environ claims Solar World will not replace any modules unless it has the appropriate warranty documents. Environ claims those documents were destroyed by Shell prior to the handover to Solar World, although Shell told the Observer this was not true.

The World Bank, which provided financing for Sri Lanka, said it too was very worried about a situation in which about 700 solar systems appear to have failed and local suppliers now risk going out of business.

Anil Cabraal, an energy specialist at the bank's Washington headquarters, has written to Shell asking for action. "I would like Shell to honor these commitments. We are not talking about millions of dollars here but hundreds of thousands," he told the Observer.

Shell (which earned $3.5 bn last year) argues it is being unfairly targeted and is doing all it can to sort out the problem (??) … which seems to consist of blaming the people they sold their business to.

While all these companies try to deny responsibility – the affected customers have been without a working solar system … or the electricity they thought they would be getting.

Morale of this Case Study

Product and Performance Warranties are important – and even buying from a big firm (especially if it is an oil firm and would benefit from slowing down the growth of the solar industry) is no guarantee they will be around to take care of you, if there was a problem with their products.

As with all fast growing industries – there will be shakeups, mergers, acquisitions, sales, bankruptcies, etc. And hopefully, there will never be a problem as wide spread as this one – there will be problems from time to time and it's best to be aware and to protect yourself.

This case study is just another reminder to remember that old maxim: Buyer Beware.

How to Protect Yourself

While the quality of solar panels in the industry has improved greatly in the past 10 years (especially the solar panel frames which now do a much better job of minimizing the climatic impact of high heat, rain, snow, wind, etc. but this doesn't mean there will never be another problem.

Since a solar installation is an significant investment it makes good sense to protect yourself (it also will be an important issue if you go to sell your home / property / solar project).

Here are some suggestions of what you can do:

1. Understand that there are several elements in a solar installation – solar panels, inverters, mounting brackets, electrical wiring, etc. Some components will last longer than others … and some elements of the installation need more regular care and regular maintenance to keep working at top performance (e.g., keeping your solar panels clean). Discuss your particular installation with your solar consultant / installer before you sign the dotted line and don't be afraid to ask what could go wrong … and what would happen if it did.

For example: some installers might use a brand name solar panel, as that is the most visible part of the installation – but could skimp on the mounting racks or inverters to keep the costs down. Like many pieces of equipment – the total installation is only as reliable as the weakest link, and it’s a good idea to understand going in what that is.

Note: Be especially careful when looking at the inverters – which don't last as long as the solar panels and will need to be replaced over the life of your installation. Find out when this is likely to happen … and how to recognize it and replace the unit.

2. Read the fine print to find out exactly what is covered, what your responsibilities are (i.e., regular maintenance, etc.) and how do you make a claim in the event there is a problem.

3. If a problem does arise - be clear what the problem is … and who you should contact to try and correct the problem (the installer? The component manufacturer? The solar panel manufacturer?) So you can avoid the old – we're not responsible for that, response.

4. Product quality standards like product warranties can vary by company and technology. How long will it last … and what happens if something happens after it expires.

Note: If you want an independent outside opinion – you might want to ask your bank … as they usually are pretty good and doing background checks on manufacturers – and (at least in the EU) have a list of pre-approved manufacturers you can get a loan for.

5. Pay special attention to the performance warranty – as this is the one that lasts the longest. Some manufacturers will guarantee that the kWp output of the panels will not be less than 90% of the rated peak value (under standard testing conditions) for the first 10 years, and not less than 80% for the next 15 years. However, there are some that offer much better performance warranties.

Know the difference between what is covered by the product guarantee and the performance warranty and how to tell if your system is underperforming … and what your remedies are.

Note: Also find out ahead of time – how the performance warranty might be affected by a later enhancement to your system (which we are seeing being offered in the market now – such as hyrdrophobic coatings, etc.).

6. Ask about a maintenance contract (does it also include regular cleanings or is that your responsibility) and how this would impact on your product and performance warranties.

7. Look into reinsurance and making it a part of your total loan package.What is re-insurance? In the event the company you buy the solar panels / inverters / installation from is not able to honor the guarantee, the re- insurance company would step in and do so.

If performance guarantees are important to you (and they certainly are if you are using bank financing to pay for your installation), then having re-insurance gives you a bit of extra comfort on the performance side, and should be something you should ask your installer, banker or insurance agent about.

8. Keep all your warranty information in a safe and logical place (I like to digitize it personally and keep it on an archived hard drive. Since performance guarantees can be valid for up to 25 years … you don't want to have to try to remember 15 years later where you put that information.

I don't mean to scare you away from going solar … but it's like your health. Keeping your Vitamin D levels sufficiently high helps prevent about 2/3 of all illnesses … and proper maintenance and regular cleaning helps equipment from breking down or working at less than peak performance.

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